How to Accurately Budget Your Money

how to accurately budget your money

There is a lot of information out there emphasizing the importance of having a budget, but what good is a budget if not done correctly? Don’t just blindly write down how much to save each month without doing a little work first. Whether you are a college student preparing to graduate or you need a refresher, this article will teach you how to accurately budget your money. If you’ve never properly created a budget before, you’ll want to keep reading.

Why Create a Budget?

Even if your financial situation seems steady and strong, you should still develop a budget. Budgeting is not just for those who need to get their finances in order; it’s for anyone to help them be prepared for any unwarranted circumstance and to avoid wasteful spending. Who feels good when they waste money? I know I don’t. To determine what your budget should be, you need to know what you’re working with. The following steps will help you create one that is realistic for you so that you can also stick with it.

How to Accurately Budget Your Money

  • First, keep this in mind: Don’t pull a 180. While it is important to stick with your budget once created, it is also unrealistic to limit yourself from everything. You should not also expect to be extremely frugal, otherwise, you might be more likely to break your budget from frustration. Don’t set yourself up for failure. You can stay committed by making simple lifestyle changes instead of giving up everything.
  • Step 1: Get the numbers down. Grab a piece of paper, pencil, and calculator (or simply start a new spreadsheet). On the paper or spreadsheet, create two columns; title one “Expenses” and one “Income.”
  • Step 2: Gather your bills. Gather your bills and expenses that you pay regularly on a monthly basis and record these under the “Expenses” tab. Make sure to include everything including spending money or any type of allowance you’ve given yourself. In order to ensure you didn’t miss anything, check credit card bills and bank statements. Bills that you pay quarterly or annually can just be averaged out per month.
  • Step 3: Add the numbers. Once you’ve figured out all of your ongoing expenses, add them up. Of course, months can vary from one to the next with finances, but this will give you a reasonably accurate idea of what you spend. (At least, what you have to spend.)
  • Step 4: Record your income. Once you have the monthly spending determined, you need to record your monthly income. You’ll need to incorporate all forms of revenue, not just your paycheck. This includes money accumulated from interest, payments from roommates or tenants (if applicable), passive income, and so on. Once you are sure you have included everything, total the numbers.
  • Step 5: Subtract. Following the completion of your “Income” column, you’ll subtract your expenses from your money in. If the result is a positive number, you’re doing OK. With money left each month, you can use this toward paying off debt, adding to a savings account, or to invest. However, if the number is negative, you’ll have to make some changes to your spending before moving forward. If you can’t increase how much money you are bringing in, you’ll need to reduce how much money goes out of your pocket. Some companies may be able to put you on a financial hardship program or offer some other alternatives such as debt consolidation.

Hopefully, you’ll find these steps of how to accurately budget your money helpful. Even if you feel hopeless right now, you will be in a much better place in a few months from now if you follow the above steps.

Do you have any tips to add? 

 

More about money:

How to Get Your Spouse on Board with Saving More

spouse

It’s no secret that finances are a touchy subject in relationships, and I’ve talked about this before here on Suburban Finance. But, one of the best ways to prevent issues is to be very open and honest about money in the household. How do you do that, though, if you have a hard time getting your spouse on board with a budget?

When my beau and I moved in together four years ago, we had to talk about all the unexciting (but important!) stuff like who is going to handle what bills, how we would split the rent and so on. As our relationship and lives have evolved, we have had to revisit this conversation over the years.

Ryan made the decision to go to medical school, a decision of which I am very proud and supportive; however, this means our spending habits have to change. Between the two of us, I am typically the one always thinking of ways to save. I had to get him on the frugal life bandwagon as well so that we will have less to worry about once he is in school full-time.

He may not be my official spouse yet, but here are a few do’s and don’ts on how to keep the money conversation from turning into a war:

Don’t be controlling

Household decisions need to be made together, not forced upon one another. Everything Ryan and I do, we try to make it a team effort. Money decisions are no different. Over the last seven and a half years, we’ve learned that the way we view money and saving do differ. So, try to pick ways to save that work for each other instead of against each other. Ultimately, you only have control over yourself. You can encourage change, but the more you push, the more resistance (or resentment) you may get. Realizing this first is the initial step.

Do set aside time for the conversation

Conversations involving finances in the home should not be rushed. Set aside time with your wife or husband to discuss one another’s financial goals. Be understanding of your spouse and their point of view as you try to explain your own.

For me, I mentioned wanting to use money we would have spent on ordering food three weeks in a row on a nice (much needed) date night out. Ryan agreed, and so he is much more conscious of this before dialing the phone for take out. This is just one real-life example of many, but I began my own conversation with bringing up this point as well as the amount spent and how it could be better used in our lives.

What might work for you is trying to find that common ground of things you may want to do together but can’t due to other financial obligations. Working together to find ways to accomplish those things is so rewarding in so many ways. Perhaps your matching goals are as simple as wanting to pay off your credit card debt within the year. This is a great starting point in developing a savings plan together.

Don’t judge your spouse’s spending habits

Ryan has a lot of outdoor hobbies, so he often likes to spend his extra cash on items for his mountain bike or new running shoes. My current spending habits are very focused on my business as well as updating our home. If either of us judged the other for how we spend our money, it would put an extra strain on our relationship.

If you want to make changes, start with yourself. Then, you can bring this up in casual conversations as follow-ups from your previous money discussion, such as:

  • “So, I decided not to buy all those new clothes and put that money in my retirement fund instead.”
  • “I’m doing this thing where any time I want to buy coffee out, I put that money into our travel savings instead. I was hoping we might be able to do that weekend getaway in the mountains we’ve been talking about.”

As mentioned in point number one, don’t try to force actions; encourage them.

Do be open and honest

If you are finding that you still have a hard time getting your spouse on board, it’s time to get a little more straight forward. Bring up the household expenses and income and go over the numbers in more detail together. Show your husband or wife why you are concerned and ask for his or her input on suggestions for change. Of course, you can discuss your own ideas, but again, finances should be a team effort; therefore, you really need to focus on gaining their insight on the situation as well. Find out their concerns and work it out together.

This may be a good time to call on an expert. Your expert of choice does not have to be a therapist. You can simply look to a financial professional and/or purchase a well-received book regarding money saving tips and building wealth. Ask your significant other to read it as well. When you are on the road together, you can download an Audible version to ensure you are both absorbing the information together. Personally, I recommend Rich Dad, Poor Dad by Robert Kiyosaki.

Usually, what I have found works best (and what seems to also work best for my friends and family) is simply showing the numbers. There are a lot of great apps out there to help calculate where you are spending your money the most, like Mint.com, but I typically just refer to my online banking account, which does this for me as well. Choose what works best for you.

Household budgeting is no easy task, and it can take just as much as work as your relationship, I have found. It seems the biggest issues is just not knowing how much money is being wasted. But, realizing one another’s goals and expressing interest in achieving them together has proven successful for me and my relationship. If your spouse knows how important it is for you to not only see your own savings goals met but his or hers, you’ll find saving to actually be pretty fun and exciting.

Is this a challenge you have faced? What has worked for you?

 

 

A Personal Finance Checklist To Kick Off Your 30’s

A personal finance checklist can help you achieve financial goals.

A personal finance checklist can help you achieve future goals.

A personal finance checklist can be useful to ensure you are on well on your way to achieving financial success (or even simply evaluating where you stand).

Your 20’s are a great time to figure your life (and yourself) out. By the time you are 30, though, you should ideally have much of your life in order. Today’s millennials do tend to take longer to get married and start their lives, as recent reports show, but in order to set yourself up for your later years, you should analyze and improve your finances now.

I just celebrated my 29th birthday at the end of April, which encouraged me to reflect on my life experiences thus far and consider the future. The last decade was focused on enhancing and nurturing my career and my personal life along with developing myself as a full-blown adult. Basically, I spent the last 10 years getting my life in order.

As I prepare for a new decade, it’s time to take the next steps for my future. One of the first steps includes using my own personal financial checklist to accomplish over the next year in order to achieve more of my financial goals. With each milestone, my monetary ambitions change, and yours should too. I’ve already accomplished some of these topics and others still need improvement. As you begin to map out your own, this personal finance checklist will hopefully help you in more ways than one as well:

Budgeting 

  • If you have not already created a budget for yourself, you should do this first and foremost. Tracking your income and expenses is definitely not fun, but it does help to keep you in check and help you build wealth.

Reduce your debt 

  • By the time I was 27, I had paid off my car and two credit cards. My credit score not only went up significantly following these achievements, but I was able to use the money I was using toward this debt to increase my savings account. While I still have my student loan debt I am working on, my credit cards were my top priority to pay off as their interest rates tend to be higher than student loans. I’ve been able to pay more than the minimum amount each month over the last few years with less debt hanging over my shoulders though.

Save for retirement 

  • If you have not been lucky enough to have a 401(k) or similar retirement plan with your job, it’s time to open your own Roth IRA or another retirement savings account option. If you do have a 401(k) with your employer, start contributing more toward this fund. Ask your employer about a match program they may offer and do what you need to do in order to take advantage of this benefit. If you can swing it, you could invest in a separate plan as well as following one with work.
    • How much should you put toward retirement? A common recommendation is a minimum of 10% of your income. If that does not seem feasible at this time, especially with other savings plans you may be contributing to, such as an emergency fund, shoot for 2-5% and work your way up to the 10% goal.

Diversify your financial portfolio

  • As you reach your 30’s, this becomes important to include on your finance checklist. Mix up your investments through stocks, bonds and the like. Before going into such a venture blindly, be sure to do your research and even consult with a financial adviser or stock broker.

Plan for the future

  • No one ever wants to really think about dying or life emergencies, but the fact of the matter is, anything can happen to any of us at any time. As you begin to build financial stability, consider starting a family and reach more life milestones, you will want to contemplate the following:
    • Life insurance. Having a life insurance plan for you (and your spouse, regardless of whether or not he or she works) will be imperative in making any hurdles life throws your or your family’s way a little easier to deal with.
    • Naming beneficiaries on your accounts. Appointing your assets to various people in the event of your passing may not seem necessary at this point in your life, but you need to be prepared for anything. If you are not married and do not have a family of your own, you will want to consider leaving your financial accounts and any assets to your parents or siblings. Your beneficiaries will most likely change and need updated multiple times throughout your life, but get it started now so that it is not a worry later.
    • Estate planning. You do not need to be wealthy in order to start your estate planning. Get a power of attorney and a health care proxy to act on your behalf should you become debilitated and/or lose the ability to make your own decisions. Doing this will ensure you still have a full say in what happens particularly to you and your family.
    • Disability insurance. Regardless of age, you should be prepared for any event in life. If something happens that causes you to no longer be capable of working, disability insurance will provide you with a source of income.

Have a financial plan with your significant other

  • Married or not, live-in couples and relationships that openly discuss finances tend to have a higher success rate in surviving the partnership. Talk to your significant other about a financial plan and goals and compromise when needed.
    • Not married or living with a significant other? Create your own financial plan and be as specific with it as possible.

While a personal finance checklist may seem a bit daunting, it does not have to be all work and no play. It is still important to remember to splurge on yourself from time to time. As you become more financially responsible (and stable), you will find this much easier to do without placing much stress on your bank account.

Start a new decade off right with this personal finance checklist as a beginning point. If you are already in your 30’s and have yet to incorporate any of the above items, take some time to begin including these in your life goals and plan.

What would you add to the list?